Defining Unfair: OTS Hears Pros, Cons

Article excerpt

WASHINGTON -- Bankers are urging the Office of Thrift Supervision to abandon or limit its plan to define unfair and deceptive lending practices, while consumer groups and some lawmakers say the agency should move quickly to ban a host of practices related to mortgages and credit cards.

Of the four agencies empowered to define such practices, the OTS is the only one so far to announce plans to do so, though sources say the Federal Reserve Board is working privately on a plan. Bankers said it would be a mistake for the thrift agency to go it alone, arguing in comment letters that such rules are unnecessary and would punish savings and loans unfairly.

"The OTS ... has a complete array of enforcement powers to ensure savings associations and their affiliates comply with such consumer protection mandates," wrote John Robinson, executive vice president of corporate risk management for Washington Mutual Inc., which operates the agency's largest thrift. "Compliance with these laws and regulations imposes a heavy burden on the industry. We would request that the OTS not add to this burden through yet more regulations, especially regulations that target specific practices, without demonstrating a clear need for them."

But consumer groups and Sen. Carl Levin, the chairman of the Senate Permanent Subcommittee on Investigations, say the need is already very clear. The Michigan Democrat suggested that the agency convert his legislation to ban several card practices into a regulation. His bill would prohibit lenders from charging interest on any portion of card debt paid on time, and it would ban several practices such as universal default and double-cycle billing. His committee has held a hearing on card practices and plans to hold another one soon.

"A consumer should not have to contact the U.S. Senate in order to get fair treatment from a credit card issuer," Sen. Levin wrote. "Clearly, the current regulatory scheme is insufficient to prevent ongoing credit card practices."

At issue is whether federal regulators should seek to define unfair and deceptive practices under the Federal Trade Commission Act. By law, the FTC, the Fed, the OTS, and the National Credit Union Administration have the power to define such practices (there is pending legislation to give the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency such power), but the four agencies have done so only sparingly. Instead, they have argued in the past that they use case-by-case enforcement powers to curb practices.

Under pressure from lawmakers, including House Financial Services Committee Chairman Barney Frank, D-Mass., the OTS unveiled an advanced notice of proposed rulemaking in August. The proposal did not seek to define unfair practices; instead, it asks a range of questions about what practices it should target, and whether a rule is needed at all.

Bankers responded in force by saying that no rule was needed, and that the OTS at least should delay any action until after the Fed writes rules governing unfair mortgage lending under the Home Ownership and Equity Protection Act. They also said that the OTS should wait until other regulators are prepared to issue rules to ensure thrifts do not face different standards than banks.

"The OTS should ensure that any new rules that would apply to federal savings banks do not create a regulatory regime that is so different in substance that it places federally chartered thrifts at a competitive disadvantage or imposes unreasonable or unwarranted costs," wrote Richard Wohl, the president of IndyMac Bank in Los Angeles. "We believe the OTS should not be overly prescriptive or restrictive when compiling specific acts or practices that will be prohibited. …